Recycling black money

The public assertion of BJPs prime ministerial candidate L K Advani to bring Indian money stashed in secret bank accounts abroad back into India has unsettled the Congress leadership in no small measure. Interestingly, the Left as well as some regional parties have included this idea in their poll manifesto for the forthcoming elections. Strangely, the Congress manifesto is silent on this issue.

That explains the consternation in the Congress camp. Writing a detailed letter on the subject to L K Advani, Jairam Ramesh, the man in charge of Congress campaign for the forthcoming Lok Sabha polls, has cautioned the former against using obscure and un-authenticated Internet sources and questioned his claim of several crores of Indian money having been stashed abroad in secret accounts. Normally a suave person and not known to use harsh words, Jairam Ramesh having been caught on the wrong foot on this issue, even went to the extent of calling Advani a liar.

Swiss money, after all, can make a cow eat meat.

Within days of this missive, Prime Minister Manmohan Singh too described Advanis figure of up to $ 1.4 trillion of black money being stashed by Indians in Swiss banks and other tax havens as bogus.

Singh added, The tax havens are being asked to function in a manner which will ensure that people who want to keep their black money will find it difficult to do so. Jairam Ramesh tacitly concedes by stating That there are Indians with Swiss bank accounts is incontrovertible.

Yet when pressed for an action plan, the party inexplicably is diffused.

Ever since the German authorities have been able to prise open a secret bank account in Liechtenstein in 2008, there has been tremendous pressure by other governments to get back their national wealth from such tax havens.

While the Congress stonewalls for some strange reason, not many know that some portion of this money could have already made its way into India through the Participatory Notes (PNs) route.

It is estimated that approximately 50-60 per cent of the total investment made by FII aggregating to $67 billion till early 2008 was through the PN route.

What makes the PN route absolutely sinister is that the identities of these investors are kept secret.

Neither the market regulator SEBI nor the RBI knows about them. The RBI has repeatedly called upon the government to ban PNs as the nature of the beneficial ownership or the identity of the investor is unknown.

Further, RBI apprehended that trading of these PNs could lead to multi-layering, which will make it difficult to identify the ultimate holder of PNs.

What is worrying RBI is that some of the money coming into the stock market via PNs could be the unaccounted wealth of some rich Indians which was taken out first through the hawala route and then brought into India through as PNs.

Strangely, unlike the stringent Know Your Customer (KYC) norm applicable to domestic investors, the KYC norms for PNs are absolutely lax. This makes PNs a potent tool in the hands of Indians who have stashed money abroad and have routed it back into the Indian stock markets.

The RBI fears narco-terror money finding its way into the Indian stock market thorough the PN route.

When the NSA, M K Narayanan, expressed apprehensions on how terrorists penetrated Indian stock markets and manipulated them a couple of years back, he was obviously referring to the PNs.

Simultaneously, the market regulator SEBI has sought to seek information from several FIIs who had issued PNs to their clients. However, SEBI has repeatedly failed as FIIs have consistently cited client confidentiality agreements to stall investigations on the matter. And strangely courts in India too seem to view that SEBI does not have the necessary legal teeth to probe further on this matter.

Surely, a portion of Swiss Money has found its way back into India.

One way of dealing with the issue is to nationalise PNs (by expropriating them) now and here. Of course we can release the PNs belonging to other nationals and genuine foreign investors.

That gives a choice to the Congress.

They can endlessly debate the amount of money lying in secret bank accounts abroad. They can surely doubt the authenticity of the source of any information on this subject. They can repeatedly question what the NDA did when it was in power. They can wait for the G20 to take action.

Nevertheless, spelling out the plan of action to tackle PNs is the ultimate yet simple and powerful test for the Congress to demonstrate its commitment to tackle corruption and the convoluted issue of Swiss Money.